Input – Output Analysis

In calculating the economic impact of the music industry in Georgia, we make use of input-output analysis. By including in our impact calculation the indirect and induced effects of production in the music industry, the input-output analysis gives a total (and accurate) picture of the output, employment, and income generated by the music industry in the state.

intermediate input. The matrix below shows, for each one dollar of output in each industry, the amount in dollars required of all three industries as an intermediate input (in columns):

3 . 0 2 . 0 4 . 0 1 . 0 3 . 0 2 . 0 4 . 0 2 . 0 1 . 0 C B A C B A

Thus, industry A requires $0.10 of its own output, $0.20 of industry B output, and $0.40 of industry C output to produce $1.00 of final industry A output. The remaining $0.30 is made up of capital and labor expenses. This means that every $1.00 of demand for industry A’s output generates $1.10 in A output (the $1 expenditure plus the $0.10 of A required as an intermediate input), $0.20 in B output, and $0.40 in C output. The total economic impact of a $1 expenditure on commodity A is thus $1.70, not $1.00. We would say, then, that industry A has a (type I) multiplier of 1.7: every $100 of direct expenditure yields a $170 impact on the economy.

It is clear that any production in industry A generates output, employment, and income in all three industries. The impact does not stop there, however, as the income earned (the remaining $0.30 of expenditure by A spent on labor and capital) will be spent on retail goods and services, housing, etc., which will generate more output, employment, and income, in those industries. In calculating the economic impact of the music industry in Georgia, we consider not only the direct effect (the $1.00 of A), but also the indirect effects (the additional $0.70 of inputs) and the induced effects (from expended income). A type-SAM (social accounting matrix) multiplier represents the sum of these effects, along with an accounting for inter- institutional transfers, and is used in this study to calculate the total economic impact of the music industry in Georgia.

About the Authors

Kelly D. Edmiston is an Assistant Professor of Economics and Senior

Associate with the Fiscal Research Center of the Andrew Young School of Policy Studies at Georgia State University. Dr. Edmiston received his Ph.D in economics from the University of Tennessee. His research interests include state and local public finance, state and local economic development, tax modeling, and taxation in federal systems.

Marcus X. Thomas is an Assistant Professor and Coordinator of the Music

Management program at Georgia State University's School of Music. He received a Juris Doctor degree from Georgia State University College of Law in 1999 and a Master of Mass Communication from the University of Georgia in 1996. His research interests include Copyright Reform, Music Business Entrepreneurship and Emerging Recording Trends and Technologies.

About The Fiscal Research Center

The Fiscal Research Center provides nonpartisan research, technical assistance, and education in the evaluation and design of state and local fiscal and economic policy, including both tax and expenditure issues. The Center’s mission is to promote development of sound public policy and public understanding of issues of concern to state and local governments.

The Fiscal Research Center (FRC) was established in 1995 in order to provide a stronger research foundation for setting fiscal policy for state and local governments and for better-informed decision making. The FRC, one of several prominent policy research centers and academic departments housed in the School of Policy Studies, has a full-time staff and affiliated faculty from throughout Georgia State University and elsewhere who lead the research efforts in many organized projects.

The FRC maintains a position of neutrality on public policy issues in order to safeguard the academic freedom of authors. Thus, interpretations or conclusions in FRC publications should be understood to be solely those of the author.

FISCAL RESEARCH CENTER STAFF

David L. Sjoquist, Director and Professor of Economics Margo Doers, Administrative Support

Alan Essig, Senior Research Associate John W. Matthews, Research Associate Lakshmi Pandey, Senior Research Associate William J. Smith, Senior Research Associate Dorie Taylor, Associate to the Director Jeanie J. Thomas, Senior Research Associate

Arthur D. Turner, Microcomputer Software Technical Specialist Sally Wallace, Associate Director and Associate Professor of Economics ASSOCIATED GSU FACULTY

James Alm, Chair and Professor of Economics Roy W. Bahl, Dean and Professor of Economics Kelly D. Edmiston, Assistant Professor of Economics

Martin F. Grace, Professor of Risk Management and Insurance Shiferaw Gurmu, Associate Professor of Economics

Amy Helling, Associate Professor of Public Administration and Urban Studies Julie Hotchkiss, Associate Professor of Economics

Ernest R. Larkin, Professor of Accountancy

Gregory B. Lewis, Professor of Public Administration and Urban Studies Jorge L. Martinez-Vazquez, Professor of Economics

Theodore H. Poister, Professor of Public Administration Benjamin P. Scafidi, Assistant Professor of Economics Bruce A. Seaman, Associate Professor of Economics Geoffrey K. Turnbull, Professor of Economics Mary Beth Walker, Associate Professor of Economics Katherine G. Willoughby, Professor of Public Administration PRINCIPAL ASSOCIATES

Mary K. Bumgarner, Kennesaw State University Richard W. Campbell, University of Georgia Gary Cornia, Brigham Young University Dagney G. Faulk, Indiana University Southeast Catherine Freeman, U.S. Department of Education Richard R. Hawkins, University of West Florida L. Kenneth Hubbell, University of Missouri Julia E. Melkers, University of Illinois-Chicago Jack Morton, Morton Consulting Group Ross H. Rubenstein, Syracuse University Francis W. Rushing, Independent Consultant Saloua Sehili, Centers for Disease Control Stanley J. Smits, Workplace Interventions, Inc. Kathleen Thomas, University of Mississippi Thomas L. Weyandt, Atlanta Regional Commission Laura Wheeler, Independent Consultant

GRADUATE RESEARCH ASSISTANTS

RECENT PUBLICATIONS

(All publications listed are available at http://frp.aysps.gsu.edu or call the Fiscal Research Center at 404/651-2782, or fax us at 404/651-2737.)

The Commercial Music Industry in Atlanta and the State of Georgia: An Economic Impact Study (Kelly D. Edmiston and Marcus X. Thomas)

This report measures the commercial music industry’s economic impact on Atlanta and the State of Georgia. FRC Report/Brief 85 (August 2003)

Twelve Years of Budget Growth: Where Has the Money Gone? (Alan Essig)

This report analyzes the growth in the state budget over the past 12 years and identifies specific policy decisions that caused and resulted in changes in the budget. FRC Report/Brief 84 (July 2003)

Local Government Competition for Economic Development (Kelly D. Edmiston and

Geoffrey D. Turnbull)

This report examines the factors driving community tax incentives for industry recruitment. FRC Report 83 (July 2003)

State Health Grants-In-Aid to Counties. (John Matthews)

This report looks at current aid alternative methods of disbursing state funds to county health departments. FRC Report/Brief 82 (July 2003)

An Analysis of a Proposed New Economic Development Incentive. (Kelly D.

Edmiston, David L. Sjoquist and Jeanie Thomas)

This report evaluates the likely impact of changing Georgia’s economic development tax incentive program. FRP Report/Brief 81 (January 2003)

The Bush Economic Stimulus Plan: What Does It Mean for Georgia. (Sally Wallace)

This brief provides a summary of the President’s economic stimulus proposal. FRP Brief 80 (January 2003)

The Effect of State Income Tax Structure on Interstate Migration. (Sally Wallace)

This report analyzes the effect of state income taxes on individual migration among states. FRP Report/Brief 79 (December 2002)

Georgia’s Corporate Income and Net Worth Taxes. (Martin F. Grace)

Racial Segregation in Georgia Public Schools, 1994-2001: Trends, Causes and Impact on Teacher Quality. (Catherine Freeman, Benjamin Scafidi and David L. Sjoquist)

This report looks at recent trends in segregation and its impact on teacher quality in the state of Georgia. FRP Report/Brief 77 (November 2002)

Job Creation by Georgia Start-Up Businesses. (Lakshmi Pandey and Jeanie Thomas)

This report examines the success rate of state-up companies in Georgia by industry and by region between 1986 and 2000. FRP Report 76 (November 2002)

Local Tax Base Sharing: An Incentive for Intergovernmental Cooperation. (Geoffrey

Turnbull)

This report develops and explains the principles for designing effective tax base sharing among local governments as a means of coordinating development incentives. FRP Report/Brief 75 (October 2002)

Firm-Level Effects of Appointment Formula Changes. (Kelly D. Edmiston and F.

Javier Arze)

This report utilizes Georgia corporate income tax returns from 1992 - 1998 to examine the effects of its 1995 change in apportionment formula on the levels of sales, payroll, and property in the state. FRP Report/Brief 74 (October 2002)

Local Land Use Policy and Investment Incentives. (Geoffrey Turnbull)

This report discusses how the threat of land use regulation affects the pace and pattern of urban development and how legal constraints on policymakers can alter the intended effects of land use controls. FRP Report 73 (June 2002)

Do Local Sales Taxes for Education Increase Inequities? The Case of Georgia’s ESPLOST. (Ross Rubenstein and Catherine Freeman)

This report examines the equity effects of Georgia’s use of the Special Purpose Local Option Sales Tax for Education (ESPLOST). FRP Report/Brief 72 (June 2002)

The Net Economic Impact of Large Firm Openings and Closures in the State of Georgia. (Kelly Edmiston)

This report estimates the net employment impact of large firm openings and closures in the State of Georgia. New high technology firms are found to generate considerably more spillover employment than non-high-tech firm openings, and the spillovers are greater the more narrowly high technology is defined. FRP Report/Brief 71 (May 2002)

(All publications listed are available at http://frp.aysps.gsu.edu or call the Fiscal Research Center at 404/651-2782, or fax us at 404/651-2737.)